Life Insurance Beneficiary Rules

Choosing a life insurance beneficiary can represent a major commitment, and may be one of the most tedious portions of enacting a new policy. While many life insurance shoppers approach designating a beneficiary as an arduous task, general policies have few rules on who (or what) can be a beneficiary, how the beneficiary must file claims and how the claims are paid.

Anyone Can Be a Beneficiary

A life insurance beneficiary is someone who receives death benefits when the insurance policy holder expires. When an individual privately purchases a life insurance plan, he may designate anyone, regardless of relation, as a beneficiary. Some policy holders elect to designate two or more beneficiaries, and some life insurance shoppers leave their insurance benefits to companies, clubs, non-profit organizations and even pets (an online training guide for accountants, available at The Free Library, actually offers advice for handling clients who want to want to leave their entire estates to dogs and cats). Some small business owners choose to designate the business as a beneficiary, allowing the business to survive even if the owner passes away. On some policies, it is not necessary to designate a beneficiary; if the policy holder does not declare a beneficiary, the benefits are simply paid to the recipient's estate.

Contingent Beneficiaries

Some insurance carriers ask policy holders to designate not only a primary beneficiary, but also a contingent beneficiary who may receive benefits if the primary designee is unavailable. Life insurance is a long term arrangement, and beneficiaries may change over time. If a policy holder designates a spouse, for example, and the pair later divorce, the beneficiary ex-spouse may be unavailable when the policy holder passes away. Even if the couple were to stay together, the beneficiary may pass away before the policy holder, leaving the benefits to be dispersed to the holder's estate. In such cases, a contingent beneficiary would receive the insurance payout if the primary beneficiary were unavailable or deceased.

Minors as Beneficiaries

Although almost anyone may be designated as a beneficiary, some insurers do not execute payout settlements to minors. If a policy holder wants to designate a minor as a beneficiary, he should instead set up a trust for the minor. If the policy holder passes away before the minor reaches the age of majority, the insurance carrier may pay into the trust without the legal hurdles associated with underage recipients.

Policy Changes and Incompetence

In an effort to stave off problems associated with declining mental health issues in senior citizens, some insurance carriers will not allow an apparently incompetent person to designate or change beneficiaries on a life insurance policy. According to Health Care Consultants, Incorporated, this denial of change may be related to legally declared incompetence, or in some cases, a proprietary test administered by the carrier's designee.

Beneficiary Rules Vary

While many insurance carriers have few or no rules governing life insurance beneficiaries, specific requirements may be dependent upon the type of policy purchased and the venue through which it was selected. According to a representative from Hewitt Associates, a major benefits outsourcing firm, specific beneficiary rules may vary wildly from policy to policy. Some group policies, for example, restrict beneficiaries to other members of the group. Policies sponsored by employers may restrict beneficiaries to immediate family members, coworkers, or even the employer itself.

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